Solution:

What is Working capital?

• Working capital is the lifeblood of a business. Its adequate planning and proper management is necessary for the successful operation and continued existence of a business.

• Efficient management of working capital is a basic the necessity for the sound operational health of every enterprise.

• Therefore, working capital management is an integral part of business management.

• Working capital management means the management of current assets, current liabilities, and the interrelationship between the two. Working capital is liquid.

• Therefore, working capital management is also called ' liquidity management '.

Concept of Working Capital:

• Working capital is understood in the following two ways:

Net Working Capital:

• Networking capital is the excess of current assets over the current liabilities. In other words, it may be defined as the provision of long-term (non-current) funds for current assets.

• The use of the concept of networking capital is qualitative as provides a measurement of the the financial health of a firm.

• The higher the amount of networking capital for sales, the better the current financial health. The networking capital also indicates the ‘margin of safety for meeting the maturing short-term liabilities (claims).

Gross Working Capital:

• Gross working capital is considered to be equal to the total current assets required by a business firm. In this context, the concept of total current assets has a broader application.

• It is intended to denote the total investment of funds in current assets for operation purposes or the total requirement of funds for current assets regardless of the financing sources.